Investment options for Indian companies in Solar PV

There are three basic parameters in case of solar which makes it attractive to every investor.

The output commodity will remain sellable as electricity demand will always increase.

The production of electricity is through a proven technology solar PV which has performed since last 25+ years. PV technology does not have any moving parts and hence there are less operational risks in the plat.

The profitability will always increase.

Until now, most of the grid connected solar plants in India have been installed under power purchase agreements (PPAs). Under a PPA, a utility agrees to buy electricity from a solar power project developer a fixed price for a period of at least 20 years. However in recent months many solar investors are opting the REC (Renewable Energy Certificate) route and generate electricity which is sold to the utility at APPC (about 2.5 Rs/kWh) and also eligible to sale the certificate at a minimum price of 9.30 Rs./kWh. Government is also planning to introduce the REC scheme for off grid captive generators, who wish to hook their solar plants to grid and continue to use solar electricity for their captive purposes. The solar electricity will be metered through net metering provisions and the solar electricity consumed by the generators will be considered a deemed generation and will be eligible to get REC benefits as well.

The various business models for sale of electricity are categorized as follows;

1. NVVN route: The power is sold at the competitively bid tariff (under NSM bidding) to NVVN which in turn sells it to DISCOM.

2. State policy Feed-in-Tariff route: The power is sold within the state to DISCOMS at Feed-in-tariff determined by state solar policy.

3. APPC + REC route: Under this route, the procurer buys the power at APPC of the state utility and buys one REC for every 1 MWh of power purchased.

4. Power exchange route: Under this route, the power is sold over the exchange and the seller gets market price per KWh and REC for every 1 MWh of sale of power.

While these business models are to be adopted depending on the opportunity in different states. The current opportunity exists under the REC route. While initial development started under the FIT route, the reverse bidding h

as taken the solar prices at a very low levels of the order of 7.49 Rs/kWh.)

It is important for companies to keep a close watch on the different policies at state level and the investment business model can be selected as and when these states come up with the revised policy guidelines. As on date, the available business model is to invest through REC route. Considering the fact that RECs are selling at a price of Rs. 12.75 /kWh, it is an important opportunity for companies to tap these benefits which are currently available untlil 2016-17.

While Solar PV is very shortly reaching to grid parity, it is important to be part of solar development to tap the business opportunity

The investors can also has an option to sale its electricity from solar projects to its own group companies or to any other third party through a third party sale option. The third party sale can also be done under the group captive mode where the buyer should have stake in a solar spv at least 26% and should at least 51% of solar electricity. Rest of electricity can be sold to the grid.

Companies which have their own office space can also explore the possibilities of installing the solar PV systems at its rooftop and also can integrate the solar PV as building integrated PV systems and enhance its buildings green building aspects which will increase the attractiveness of investors in green building projects. Its modular design and ability to fit on existing rooftop systems makes it very convenient to adopt in the existing buildings as well as on the new building projects. Adopting solar in buildings will also help a company to avail faster environmental clearances and higher FSI benefits, and the energy generated can be used to achieve goals around self-sufficiency and corporate social responsibility.

The levelized cost of energy (LCoE) for utility scale PV systems falls within the general range of 7-9 Rs/unit (kWh). Government initiatives such as RPO (Renewable Portfolio Obligations) are aiming for grid parity. This support, coupled with other financial incentives such as accelerated depreciation and other tax benefits have made solar investments much more attractive.

In a typical 10 MW investment in solar project is about 80 Crore Rs, and can get about 20 Cr. Benefits in the form of accelerated depreciation benefits. The income from solar projects is tax free for ten years and only MAT is applicable on solar projects.